The Star Entertainment Group Limited (ASX code: SGR) (The Star) has today announced that it has submitted a conditional, non-binding, indicative proposal to merge with Crown Resorts Limited (Crown) at a nil-premium share exchange ratio of 2.68 The Star shares per Crown share (Indicative Proposal).A copy of the Indicative Proposal is attached to this announcement.
Based on recent trading values of The Star and the substantial value that would be unlocked by a merger, The Star estimates its pro forma share price to be more than $5 per share implying potential value of the Scrip Consideration in excess of $14 per Crown share. The Indicative Proposal also includes a cash alternative of $12.50 per Crown share for up to 25% of Crown’s issued share capital (with any scale back to occur on a pro rata basis) (Cash Alternative). Crown shareholders that accept the scrip consideration may qualify for capital gains tax rollover relief(1)
.
The Star believes that a merger with Crown represents a compelling value proposition for all shareholders for the following reasons:
• A merger represents a highly accretive transaction for both The Star and Crown shareholders;
• It would create a national tourism and entertainment leader with a world-class portfolio of integrated resorts with enhanced scale and geographic earnings diversification, significant balance sheet strength and free cashflow generation to accelerate debt repayment, support attractive fully franked dividends and pursue continued investment;
• It is expected to deliver between $150 million to $200 million of cost synergies per annum with an estimated net value of $2 billion;
• It could unlock significant value from a sale and leaseback of the enlarged property portfolio (or via a similar structure and subject to the receipt of necessary regulatory consents);
• It would support an enhanced range of products and experiences for domestic and international guests across the portfolio of integrated resorts; and
• It would provide access to exciting growth opportunities only available through the merger across marketing and events, digital and technology initiatives, investment in online capabilities and optimisation of a combined loyalty program to deliver enhanced value for members.
The Star’s Chairman, Mr John O’Neill AO, said that bringing together The Star and Crown would create an estimated $12 billion ASX-listed national tourism and entertainment leader.
“A merger of The Star and Crown would result in significant scale and diversification and unlock an estimated $2 billion in net value from synergies. With a portfolio of world-class properties across four States in Australia’s most attractive and populated catchment areas and tourism hubs, the combined group would be a compelling investment proposition and one of the largest and most attractive integrated resort operators in the Asia Pacific region.”
The Star looks forward to working with Crown to develop the Indicative Proposal, noting it believes it can complete its necessary due diligence and agree binding merger and definitive debt financing documentation over the course of the next eight to twelve weeks. We would seek to engage with a range of investors on a potential sale and leaseback (or similar structure) of the enlarged property portfolio during diligence. Given its existing relationships with governments and regulators and its proven track record of governance and compliance, The Star is confident it is well positioned to obtain the necessary regulatory approvals for the merger. The Star has existing, long held casino operator licences in New South Wales and Queensland.
This announcement should be read in conjunction with the enclosed investor presentation and Indicative Proposal. The Indicative Proposal is subject to a number of conditions including due diligence. No agreement has been reached at this time and there is no certainty that discussions will result in a corporate transaction. The Star will make any decisions in relation to the Indicative Proposal having regard to strict strategic and financial criteria. The Indicative Proposal (and this announcement and any accompanying material) does not constitute a proposal to make a takeover bid for the purposes of Chapter 6 of the Corporations Act 2001 (Cth). It represents a conditional, incomplete and non-binding proposal which is subject to negotiation.
The Star has appointed Flagstaff Partners and Credit Suisse as financial advisers and King & Wood Mallesons as legal adviser in relation to the Indicative Proposal. The Star is working with Credit Suisse in relation to financing. In this regard, Credit Suisse has provided The Star with a Highly Confident Letter relating to the debt financing, which is appended to the Indicative Proposal, and approved its release.
The Star will be holding a conference call for investors on Monday 10 May 2021 at 10am AEST.
Participants can register for the conference call by navigating to https://s1.cconf.com/diamondpass/10013993-sod872.html. Registered participants will receive their dial-in details upon registration.
